Capitalist Crisis & the EU

For the Socialist United States of Europe!

A spectre is haunting Europe—the spectre of massive and chaotic social upheaval triggered
by brutal austerity measures imposed to cover bad bets made by bankers and financial speculators.
The gutting of pensions, healthcare and social services, combined with rising unemployment and
homelessness, has created a volatile mix of anger, fear and despair among millions of people, who
resent being stuck with the bill for an economic crisis for which they are not responsible.

Greece has been in the front line of the capitalist offensive, but Portugal, Ireland, Spain and
Italy are not far behind. Together they comprise approximately 40 percent of the population of the
“euro zone”—the 17 members of the European Union (EU) that use the euro as their
common currency. The precarious economic position of these countries led U.S. banks and other
international investors to dump government bonds issued by many EU members and tighten credit for
their banks. This, in turn, spurred European financial institutions to reduce their loan portfolios
and increase capital reserves. The resulting “credit crunch,” combined with decreased
government expenditures due to austerity, has shrunk aggregate GDP and pushed much of the continent
into recession.

A crisis in the EU, whose 27 member states account for roughly a quarter of global GDP, is,
practically by definition, a crisis for the entire international capitalist order. The leaders of
the advanced capitalist world are deeply concerned that the euro crisis may spiral out of control.
In June 2012, World Bank head Robert Zoellick warned: “Europe may be able to muddle through
but the risk is rising….There could be a Lehmans moment [the 2008 collapse of Lehman Brothers
in the U.S. that led to the worst financial panic since 1929] if things are not properly
handled” (Observer [London], 16 June 2012). Zoellick is not the only one who fears
that a euro crisis could unleash an uncontrollable global financial meltdown that might well plunge
the world into a deep depression of indefinite duration.

Capitalist Development & European Integration

The current problems in the euro zone are, at bottom, the result of the inherent crisis
tendencies of the capitalist mode of production. The expression of these problems in the form of a
crisis of the common currency (and of the EU) reflects a profound contradiction within bourgeois
society between nationally-based capital and the imperatives of an increasingly integrated
international economy.

The removal of much of what remained of Europe’s feudal economic, social and political
structures during the course of the French Revolution and subsequent Napoleonic wars laid the basis
for the continent’s vigorous but uneven capitalist development during the 19th
century. The enormous social transformations wrought by the industrial revolution were, from the
beginning, international phenomena, as Karl Marx and Friedrich Engels noted in the 1848
Communist Manifesto: “In place of the old local and national seclusion and
self-sufficiency, we have intercourse in every direction, universal inter-dependence of
nations.” Capitalism, they famously observed, “batters down all Chinese walls,”
yet its development is constrained by the framework of the nation-state, even as it begins to lay
the foundations of a world market and an international division of labor.

The tension between the “international” and the “national” aspects of
capitalist development has always characterized the bourgeois mode of production. During the period
of capitalism’s historical ascendency, this contradiction did not pose a serious impediment to
the growing ability of humanity to control and transform nature through the development of the
“forces of production.” The catastrophe of the First World War, which was a direct
product of the rivalries between competing imperial great powers for domination, signaled that
capitalism had outlived its historically progressive role and that it was necessary to construct a
new world order based on collective ownership of the means of production and rational planning: a
system of global socialism.

The obvious solution to the problem of capitalist rivalry, and the danger of inter-imperialist
military conflict, is economic integration, as the great Russian revolutionary Leon Trotsky observed
in 1929:

“The basic task of unification must be economic in character, not only in the
commercial but also productive sense. It is necessary to have a regime that would eliminate the
artificial barriers between European coal and European iron…. All this, in its turn, is
inconceivable without the destruction of the ancient Chinese system of custom borders within Europe.
This would, in its turn, mean a single, All-European customs union—against America.”—“Disarmament and the United States of
Europe”

German imperialism’s bid to “unify” Europe under the swastika in the 1930s and
1940s was defeated by the armed might of the Soviet degenerated workers’ state with assistance
from a coalition of imperialist powers (chiefly the U.S. and Britain) pursuing their own predatory
goals.

The defeat of Nazi Germany in 1945 led to the partition of Europe (and Germany itself) between a
Soviet bloc in the East and a capitalist bloc in the West. The workers of Western Europe were well
aware that the Soviet military had defeated the Nazis and that partisans of the Communist Parties
(CPs) had comprised the core of the Resistance. They were also aware that most of Europe’s
ruling elites had actively collaborated with the Nazis. Having suffered through severe economic
depression, fascism and a conflagration that killed some 50 million people, many European workers
were openly hostile toward capitalism and favorably inclined to the idea that a system based on
collectivized (rather than private) property would produce a more egalitarian social order. This
mood was reflected in the West European elections of 1945-46 in which the Communist Parties (which
were mistakenly seen as revolutionary) polled much higher than they had in the 1930s—winning
10.5 percent of the vote in the Netherlands, 11 percent in Denmark, 12 percent in Belgium, 19
percent in Italy and 28 percent in France (Alfred Grosser, The Western Alliance).

This was the context in which the U.S. imperialists, the unquestioned leaders of the postwar
capitalist world, decided to help their European and Japanese rivals recover as quickly as possible.
In addition to Marshal Plan assistance to revive the economies of the West, U.S. strategists viewed
investment in the creation of a European “welfare state” as necessary to blunt the
appeal of a powerful left wing within the working class. The U.S. State Department put a priority on
establishing a new, pro-capitalist social-democratic union leadership unambiguously loyal to the
West. CIA labor operatives played a key role in this effort, successfully engineering splits in
those unions where pro-Soviet elements could not easily be dislodged. In 1947, for instance, Force
Ouvrière was launched as a rival to the CP-dominated Confédération
Générale du Travail, the largest labor central in France.

The U.S. viewed economic cooperation between Europe’s major powers (particularly France and
West Germany) as an integral part of the global drive to contain and roll back the Soviet bloc.
Inter-imperialist hostilities in Europe had provided considerable room for maneuver for the Soviet
Union in the decade following World War I, and America’s rulers wanted to prevent any
repetition in the postwar period. The economic support offered by Washington to Europe dovetailed
with U.S. plans to end the system of “imperial preferences” and open European colonial
holdings to penetration by American capital. From the standpoint of the European imperialists
themselves, greater cooperation made sense as part of a reconstruction project that would eventually
allow them to emerge as viable economic competitors.

The European Union began in 1951 as the European Coal and Steel Community (ECSC), which was
composed of the Benelux countries, France, Italy and West Germany. Six years later, ECSC members
launched the European Economic Community (EEC), aka the “Common Market,” and pledged to
standardize policies in transport, agriculture and other sectors. The signatories to the 1957 Treaty
of Rome—which also created the European Investment Bank, European Parliament and Council of
Ministers—set as their long-term goal the full economic and political integration of Western
Europe. By 1968, the countries of the Common Market (now nine in number) had negotiated a customs
union with a common tariff system, and began to relax restrictions on cross-border movements of
capital and labor.

British imperialism has traditionally expressed only tepid enthusiasm for European integration,
and has sought to offset its historic decline in part by cultivating a “special
relationship” with the U.S. In 1960, Britain, along with Switzerland, Portugal, Austria,
Denmark, Norway and Sweden, created the European Free Trade Association as a rival to the EEC. When
that failed, Britain attempted to join the EEC, only to have its applications blocked twice by
France before finally being admitted in 1973 along with Denmark and Ireland.

George Soros, the maverick financier, recently described the project of European economic
integration as an “unreal but immensely attractive” capitalist utopia, an open society
“founded on the principles of democracy, human rights, and rule of law in which no nation or
nationality would have a dominant position.” He described how the EU evolved under the
leadership of politicians who:

“set limited objectives and firm timelines and then mobilized the political will
for a small step forward, knowing full well that when they achieved it, its inadequacy would become
apparent and require a further step. The process fed on its own success, very much like a financial
bubble.”—georgesoros.com, 2 June 2012

An apt analogy, particularly after the bursting of the financial bubble that followed the
creation of the euro put the whole project in jeopardy.

Economic integration offered the possibility of operating on a much larger playing field, with a
vast expansion of production, finance and trade that would enable European enterprises to become
more competitive internationally. But from the outset, the success of the European project has
depended on the rulers of each of the great powers willingly subordinating their own particular
short-term interests to the long-term goal of being a minority shareholder in a much larger imperial
enterprise.

Each European ruling class responded to the global economic downturn of the early 1970s by
attempting to “export” the crisis by finding new markets and fields for
investment—deepening the phenomenon now known as “globalization.” This was
combined with “neoliberal” attempts to restore profitability at home by reducing wages
and social expenditures, weakening unions and introducing more “flexibility” into the
labor process, while simultaneously lowering corporate tax rates and easing government regulation
(particularly in the financial sector).

The triumph of counterrevolution in the degenerated and deformed workers’ states of the
Warsaw Pact emboldened the capitalists, who celebrated their victory by accelerating neoliberal
attacks. Social-welfare policies that had been seen as necessary to maintaining stability during the
Cold War could now be dispensed with. The biggest beneficiary of capitalist restoration in the
Soviet bloc was Germany, which not only absorbed the former German Democratic Republic (DDR aka
“East Germany”) but was also best positioned to take advantage of the vast new markets
and opportunities for exploitation in the fledgling capitalist economies of the East.

This prospect was not particularly pleasing to Germany’s major EU partners. In her 1993
memoir, The Downing Street Years, Margaret Thatcher recounted a discussion with Soviet
chief Mikhail Gorbachev in September 1989 (prior to the fall of the Berlin Wall):” I explained
to him that although Nato had traditionally made statements supporting Germany’s aspiration to
be reunited, in practice we were rather apprehensive.” Italian leftist academic Guglielmo
Carchedi noted that there was a “desire, especially by France, to contain a possible
resurgence of German expansionism by integrating the German economy in a European context”
(For Another Europe, 2001). The German bourgeoisie, making the opposite calculation,
concluded that deepening and extending the process of continental integration would, over the long
run, tend to strengthen, not weaken, its dominant position in Europe.

Imperialism, European Integration & Marxist Tactics

During the 1980s, the EEC admitted Spain, Portugal and Greece and deepened the common
market’s supranational elements. The 1986 Single Market Act expanded the role of the
Brussels-based European Commission in developing economic policy, while an earlier agreement
eliminated border controls in the so-called Schengen Area. The 1992 Maastricht Treaty projected the
transformation of the EEC into a new, broader venture called the European Union, with an
“economic and monetary union” and a single currency by the end of the decade.

The EU project has gone further down the road to economic integration than many—including
ourselves—anticipated. In our 1994 assessment of the Maastricht Treaty, we asserted:
“Plans for moving to a common currency (supposed to be a milestone on the road to European
Union) were shattered by two monetary crises: in September 1992, and July 1993” (“European Disunity”,1917 No.13, 1994). In fact, the common currency project survived. In 1999, the euro came into existence
in the form of permanently fixed exchange rates, and three years later began to circulate in 12
countries (now 17).

The Maastricht Treaty was endorsed by the section of the bourgeoisie that favored freer trade and
closer economic cooperation, and was opposed by more protectionist elements, the far right and most
of the European far left and workers’ movement. In many cases, the arguments employed by the
treaty’s ostensibly Marxist critics were barely distinguishable from those put forward by its
bourgeois opponents. We took a different view, criticizing those professed socialists who,
“rather than be marginalized, strain to discover some kind of leftist, working-class pole in
the Maastricht controversy.” While we recognized that it is possible for “questions that
would ordinarily be seen as intra-bourgeois disputes to acquire a class significance” in some
circumstances, and noted that “Unlike voting for a candidate in an election, voting no in a
referendum could also be a purely negative act,” we concluded: “Revolutionaries refuse
to choose between these bourgeois poisons, and call for opposition to both capitalist
‘options’ for intensifying exploitation” (Ibid.).

The EU has expanded considerably since the Maastricht Treaty was signed. In 1995, Austria, Sweden
and Finland joined, followed in 2004 by Malta and Cyprus as well as eight former members of the
Soviet bloc: the Czech Republic, Slovakia, Hungary, Poland, Slovenia, Estonia, Latvia and Lithuania.
Bulgaria and Romania were accepted in 2007, and Croatia is scheduled to join in July 2013. Serbia,
Macedonia, Montenegro and Albania have all applied for membership.

The triumph of capitalist counterrevolution in 1989-91 resulted in the effective subordination of
Eastern Europe to West European finance capital:

“Above all, in the course of their transformation into market economies the CEEC
[Central and Eastern European Countries] have become important trade partners for the EU-15 [the EU
members that joined prior to 2004], which today source roughly 13% of their imports from the CEEC
and ship 15% of their exports there. In the boom year 2007 the volume of trade between the CEEC and
the EU-15 totalled some EUR 440 bn (with a surplus of about EUR 45 bn for the EU-15). The CEEC are
far more dependent on this trade, their economic strength being considerably less. About 50% of CEEC
external trade is conducted with the EU-15. This interdependence is similarly high in the banking
sector. On average, foreign—most notably west European—banks hold 75% percent [sic] of
the total assets of the banking sector in the CEEC. In the euro area countries, foreign-owned banks
account for a market share of only 24%. European—mainly euro area—banks also hold a
dominant position in cross-border lending to the CEEC, accounting for more than 90%. These high
interdependencies are clearly indicative of the CEEC’s positive economic integration into the
EU.”—Deutsche Bank Research, “As time goes by...,” 12 May
2009

The dependent capitalist states of Eastern Europe could, of course, be subjected to imperialist
exploitation without membership in the EU, but German and French capital have opted to admit
politically “stable” countries with a “viable market economy.”

While we have always opposed both the European Union and autarkic alternatives, in the various EU
referenda we have responded with different tactics in order to highlight particular issues,
depending on the conjuncture. In 2005, the EU held a referendum to approve a new constitution
designed in part to facilitate the incorporation of the former deformed workers’ states. We
advocated a “no” vote in an attempt to express opposition to the predatory plans of the
imperialists for the East European countries. We did so while recognizing that: “Many of the
supposed socialists in the ‘no’ camp put forward the notion that the austerity drives
and anti-working class attacks undertaken by each national bourgeoisie originate in directives from
Brussels, rather than from their own aggressive pursuit of profits” (1917 No.28,
2006). The proposed “constitution,” which was derailed when voters in the Netherlands
and France refused to ratify it, was repackaged two years later as the Lisbon Treaty and approved
after a new round of voting.

In Ireland, any major EU treaty modifications must be ratified through a referendum. This has
given the Irish more opportunities than most to have their say. In 2009, we advised a spoiled ballot
in the Irish plebiscite on the Lisbon Treaty, because we considered the key political issue to be
the rise of nationalist/protectionist sentiment within the working class:

“Whether it is better to vote ‘No’ or spoil your ballot in this
referendum is a tactical question that boils down to how socialists can best promote class
consciousness within the proletariat given current political circumstances.

“The present political context is sharply defined by a rising tide of nationalism
being pushed by elements of the ruling class and the trade-union bureaucracy as a response to the
crisis.”—“On the Lisbon Treaty referendum,” 29 September
2009

In 2012, we employed a different tactic, advocating a “no” vote in the referendum to
ratify Irish participation in the Fiscal Compact, which requires signatories to balance their
budgets, i.e., increase austerity. The Irish government was already engaged in a vicious campaign of
cuts to social services and public-sector wages, combined with tax hikes for those on low incomes
while holding corporate rates at 12.5 percent. Unlike the 2009 referendum, which was widely seen as
a judgment on the EU project in general, the 2012 vote was posed in terms of supporting or not
supporting austerity. Despite a huge “yes” propaganda campaign by the capitalist
establishment, nearly 40 percent voted “no.”

There are important parallels, but also significant differences, between the EU in its present
configuration and the limited economic integration promoted by the 1993 North American Free Trade
Agreement (NAFTA), by which U.S. and Canadian imperialism incorporated Mexico into their preexisting
bloc. To smooth the integration of their Eastern European hinterland, the West European imperialists
ceded certain powers to supranational bodies which none of them directly controls. While Mexican
immigrants who cross the Rio Grande in search of work are persecuted as “illegals,” EU
citizens, with some restrictions (particularly for those from newer member states, Romania and
Bulgaria), are permitted to work in other EU countries.

The resulting increased mobility of labor has generated a limited tendency toward convergence of
wage rates across Europe. Demand for labor in Eastern Europe has risen, as Jane Hardy noted in the
case of Poland:

“Migration has had a significant impact on the Polish economy. While it has
contributed to lowering the unemployment rate, which by 2008 had fallen to 11 per cent [from 20 per
cent in 2004] (GUS, 2008) migration has also brought about a significant drain of well-educated
people and skilled workers.” —Poland’s New Capitalism, 2009

In the imperialist countries, there has been an ugly nationalist response to foreign workers,
reflected in rising popularity of anti-immigrant demagogues and the rightward shift of mainstream
bourgeois parties. In France, the presidential candidate of the far right National Front, Marine Le
Pen, won nearly 18 percent of the vote in the last election. President François Hollande of
the Socialist Party has continued his right-wing predecessor’s practice of dismantling the
encampments of impoverished Roma (who are EU citizens) and sending them back to Romania or
Bulgaria.

The growing danger of nationalism poisoning the workers’ movement was underscored by the
2009 Lindsey oil refinery strike, where trade unionists reacted to the hiring of Italian and
Portuguese labor with chauvinist demands for “British jobs for British workers.” As we
noted at the time, the response of class-conscious militants must be to vigorously champion full
citizenship rights for all immigrants while fighting to “level up” pay and working
conditions:

“a decisive intervention early on by class-conscious militants in favour of
recruiting all workers who wished to join the union, while imposing a closed shop with union control
of hiring, could have put the struggle on an entirely different footing. Linked to demands for
dividing the work equitably at no loss in pay, this approach could have set an example of how trade
unions throughout the EU can ‘level up’ pay and working conditions. In this way it might
have helped to popularise the idea of forging a single industrial union for all workers in the
construction industry across Europe. Of course, even prior to achieving that, a class-struggle
leadership would seek to extend union membership to all workers employed in their sector, give
parity to members of foreign unions in Britain and seek to negotiate reciprocal agreements for
British trade unionists abroad.”—“Militant Tactics & Poisonous Nationalism,”
1917 No.32, 2010

In relation to the Maastricht Treaty, we argued that the workers’ movement has no interest
in advising the bosses how best to organize capitalist exploitation. Marxists take no side in
disputes among sections of the bourgeoisie over the relative merits of free trade or protectionism:
“We neither advocate a strong dollar/pound/mark/yen nor a weak one, a return to the gold
standard or floating exchange rates” (“European Disunity,” 1917 No.13, 1994).

Revolutionaries are just as hostile to the existence of the EU as to the individual capitalist
states that comprise it. For working people, the way forward is internationalist class
struggle—opposing the EU, while also combating illusions in any sort of nationalist capitalist
path. The only historically progressive solution to the contradictions of European capitalism is the
revolutionary overthrow of the whole system of production for profit and the creation of a socialist
order.

Prospects of a Greek Exit

Some leftists suggest that the diktats of the so-called “troika” (the International
Monetary Fund, European Central Bank and European Commission) to Greece and other dependent
countries in the EU “periphery” can be countered by exiting the euro and restoring a
national currency. Marxists do not oppose such demands in principle—our attitude is determined
at every point by what is most likely to advance the class struggle. It is essential to win workers
to the recognition that their main enemy is their own ruling class, not the Eurocrats in Brussels.
This would very quickly become clear if Greece were to abandon the euro, as the restoration of the
drachma would allow Greek capitalists to quickly push down wages through devaluation, rather than a
frontal assault.

In a recent statement, the Spartacist League/Britain (a section of the International Communist
League) characterized a possible Greek exit from the EU as a blow against imperialism:

“If Greece were to be propelled out of the euro—and the
EU—under the impact of mass opposition to EU-dictated starvation policies, it would
be a defeat for the imperialists and a step forward for the working class, in Greece and the rest of
Europe.”—Workers Hammer, Spring 2012

This conflates workers’ resistance to austerity with the reestablishment of a national
currency—in fact, the “step forward” in their scenario would be the level of mass
struggle, not the restoration of the drachma. If the troika were forced to make major concessions to
Greek workers “under the impact of mass opposition,” that too “would be a defeat
for the imperialists and a step forward.” If the Greek bourgeoisie were to be compelled to
leave the EU, any benefits that workers might derive from a free-floating drachma would be more than
offset by falling real wages, as the prices for essential consumer goods (most of which are
imported) soared out of reach.

A leading Swiss bank made the following prediction regarding the impact of a Greek departure from
the euro zone:

“Consequences include sovereign default, corporate de-fault, collapse of the
banking system and collapse of international trade. There is little prospect of devaluation offering
much assistance. We estimate that a weak Euro country leaving the Euro would incur a cost of around
EUR9,500 to EUR11,500 per person in the exiting country during the first year. That cost would then
probably amount to EUR3,000 to EUR4,000 per person per year over subsequent years. That equates to a
range of 40% to 50% of GDP in the first year.”—“Global Economic Perspectives,” UBS, 6 September
2011

While acknowledging that currency depreciation would make Greek exports more competitive, the
report’s authors anticipate that the EU would likely impose countermeasures:

“The rest of the Euro area (indeed the rest of the European Union) is unlikely to
regard secession with tranquil indifference. In the event that a NNC [new national currency] were to
depreciate 60% against the Euro, it seems highly plausible that the Euro area would impose a 60%
tariff (or even higher) against the exports of the seceding country. The European Commission
explicitly alludes to this issue, saying that if a country was to leave the Euro it would
‘compensate’ for any undue movement in the NNC.”—Ibid.

The response of the Greek bourgeoisie would inevitably be to attempt to further push down living
standards while brutally repressing any working-class resistance in the name of national salvation
(i.e., restoring the competitiveness of Greek capitalism). In the absence of massive class struggle,
the price of leaving the EU for Greek working people would be roughly the same as remaining within
it: tightened belts and dented skulls.

From ERM to Euro: Contradictions of a Single Currency

The current EU crisis, which has been shaped by attempts to remedy earlier problems, is clearly
“stress-testing” the limits of European integration within a capitalist framework.
Unlike the U.S. dollar with which it competes as a global medium of exchange, the euro is a currency
without a state, an unprecedented phenomenon in modern history.

The origins of the euro can be traced to the 1971 termination of the Bretton Woods system, the
post-WWII global currency regime that used a gold-backed U.S. dollar as its standard. In order to
stabilize exchange rates to facilitate trade within the EEC, a European Exchange Rate Mechanism
(ERM) was eventually established, setting a narrow range within which member states’
currencies were permitted to deviate from a European Currency Unit (the euro’s notional
forerunner). The relative weight of the German economy made the deutschmark the central currency in
the ERM, and the West German central bank (the Bundesbank) the arbiter of the system. But the ERM
was plagued by the same problem presently bedeviling the euro zone—the fact that different
national currencies rise and fall in relation to each other as the relative strength of the
economies they represent increases or decreases.

Throughout the 1980s, Germany pursued a monetarist policy of low inflation, which set the tempo
for the ERM as a whole. This limited the options of participating governments in coping with the ups
and downs of the market and the class struggle, as a significant currency devaluation, for instance,
would have placed a country outside the framework of the ERM. When France’s Socialist
Party-led government turned toward austerity in 1982, its left-nationalist critics tended to blame
the “strong franc” policy necessitated by adherence to the ERM. In reality, President
François Mitterrand would never have pursued this strategy had it not suited the requirements
of the French bourgeoisie.

The movement toward the common currency was decisively shaped by the economic preponderance of
Germany in the EU, and by the fact that the overheads incurred in swallowing the DDR in 1990, which
ran to some 400 billion deutschmarks, were considerably greater than anticipated. To dampen the
inflationary pressures generated by these costs, the Bundesbank raised interest rates on government
debt, which immediately attracted foreign investment and pushed up the value of the mark. This
required other European currencies, which were effectively pegged to the mark through the ERM, to
rise, thereby increasing the price of their exports and further depressing already sluggish economic
activity.

In 1993, following a massive run on the French franc and Italian lira by speculators betting that
the peg would not be maintained, the exchange rate margin soared from 2.25 to 15
percent—effectively nullifying the ERM, which was nonetheless formally maintained in
anticipation of pending monetary union. While many hoped that the euro would somehow overcome the
problems of the ERM, the present crisis is an expression of essentially the same dilemma—a
common monetary policy without a common political authority.

Throughout the 1990s, the German government sought to improve the “business climate”
with a mix of direct and indirect tax hikes, cuts to social services, downward pressure on wages and
the gutting of a substantial chunk of basic industry, including steel plants and mines. This drive
accelerated under the social-democratic Schroeder government with its “Agenda 2010” and
the Hartz “labor reform” program initiated in 2002, which, due to the passivity and
acquiescence of the trade-union bureaucrats, resulted in a sharp decline in working-class living
standards. Real wages fell every year for a decade, with unemployment peaking in 2005 at 4.9
million. German industry experienced a corresponding rise in profitability during the same period.
With varying degrees of success (generally inversely proportional to the stiffness of working-class
resistance), the bourgeoisies of other EU countries pursued similar policies in an attempt to
improve their rates of profit and keep pace with their German partners.

The requirements of the common currency, which is incapable of reflecting shifts in political and
economic circumstances between member states, complicated these efforts. As Marx observed, the value
of a currency ultimately reflects the productivity of labor in a given country. The euro lacks some
of the key qualities of a national currency because it is not issued by a single political
authority, but rather by a bloc of distinct states with different, and sometimes conflicting,
regulatory systems:

“Almost all of the money in a contemporary economy consists of the liabilities of
financial institutions. In the eurozone, for example, currency in circulation is just 9 per cent of
broad money (M3). If this is a true currency union, a deposit in any eurozone bank must be the
equivalent of a deposit in any other bank. But what happens if the banks in a given country are on
the verge of collapse? The answer is that this presumption of equal value no longer holds. A euro in
a Greek bank is today no longer the same as a euro in a German bank. In this situation, there is not
only the risk of a run on a bank but also the risk of a run on a national banking system.”—Financial Times, 31 May 2011

The euro zone countries currently in the most trouble are those with lower levels of labor
productivity. While no country is immune from the effects of capitalism’s crisis tendencies,
it is hardly surprising that the “chain” of the European monetary union has begun to
break at its weakest links.

The common currency acts as a sort of external constraint on every euro zone member state, with
the partial exception of Germany, as leftist economist Michel Aglietta noted:

“Like the ERM before it, the single currency may be viable within the existing
rules as long as there is calm in the financial markets, but becomes inoperable in periods of
crisis. The euro is essentially a foreign currency for every Eurozone country. It binds them to
rigidly fixed exchange rates, regardless of their underlying economic realities, and strips them of
monetary autonomy.”

• • •

“…the euro is incomplete as a currency, for its sovereign guarantor has not
been realized. Each Eurozone state is responsible for the capital it has invested in the ECB
[European Central Bank], but not for its overall solvency; consequently, the ECB is not the lender
of last resort for the Eurozone states. This, again, makes the euro a foreign currency for each
country. There can be no cooperative policy-making in Europe if the currency is external to all
member-states.”—New Left Review, May-June 2012

Europe’s “sovereign debt crisis” is, at bottom, an expression of a long-term
profitability crisis that began in the early 1970s. Blaming “generous” social programs
in Greece or Spain for the euro crisis makes as little sense as explaining Wall Street’s 2008
financial meltdown as the result of “irresponsible” Americans who accepted offers of
mortgage loans they could not possibly repay (see “Pathologies of Capitalism,”
1917 No.34, 2012).

Monetary Union & Economic Crisis

Germany’s weaker euro partners welcomed the common currency because it was perceived as the
successor to the deutschmark and, as such, would allow them to borrow at relatively low rates of
interest. At the same time, the euro prevented member states with lower productivity from engaging
in competitive devaluations to boost domestic producers’ exports.

Monetary union initially appeared to guarantee financial stability and economic security for all
participants. With government debt in the euro zone rated as virtually risk-free, weaker countries
at the periphery could borrow money cheaply (which contributed to housing bubbles in Ireland and
Spain and the explosive growth of public debt in Portugal and Greece). Meanwhile, German industry
enjoyed record profits as demand for its products soared:

“In 1999, exports were 29% of German gross domestic product. By 2008, they were
47%—an increase vastly larger than in Italy, Spain and Greece, where the ratios increased
modestly or even fell. Germany’s net export contribution to GDP (exports minus imports as a
share of the economy) rose by nearly a factor of eight. Unlike almost every other high-income
country, where manufacturing’s share of the economy fell significantly, in Germany it actually
rose as the price of German goods grew more and more attractive compared to those of other
countries.”—Wall Street Journal online, 29 November 2011

It all came to an abrupt end in 2008 with the bankruptcy of Lehman Brothers. Suddenly the spigot
was turned off as European banks sought to strengthen their balance sheets to offset exposure to
toxic U.S. assets. Cheap credit disappeared overnight and the hyper-inflated housing markets in
Ireland and Spain collapsed. The big EU banks were directly impacted by the U.S. crash, as Aglietta
observed:

“The EU single market created an integrated financial space, open to capital
flows. The large European banks became global operators. They played an active part in the expansion
of debt and toxic assets in the US and, when the crisis broke out in 2007, found themselves in a
position comparable to that of the American banks. But the French, German and Spanish governments
initially allowed them to freeze their bad debts, rather than forcing them to restructure. The banks
also loaded up on Eurozone public debt in the years that followed—raking in considerable
profits for themselves in the process, by borrowing at practically zero rates and buying government
bonds paying 3 to 4 per cent interest at the time of the 2009 stimulus plans. During the first two
years of the crisis, as the 2007 credit crunch deepened into the banking crisis of 2008, the fall of
Lehman Brothers and the global economic contraction of 2009, the Eurozone states saw private debt as
a percentage of GDP continue to rise, while gross public debt—that is, without factoring in
assets—also soared with the recession.”—op cit

Prior to the crash little attention was paid to the fact that the European monetary union did not
amount to a political union. Angela Merkel highlighted the significance of this fact when she
announced that her government considered each member of the euro zone responsible for paying off its
own creditors and bailing out its own banks.

The German bourgeoisie benefited from a “flight to quality,” as investors unloaded
the euro-denominated debt of the EU’s weaker economies and purchased German securities. In
exchange for rolling over the debts of Greece and others in the EU, Berlin has insisted on imposing
“structural reforms” (i.e., austerity) supposedly to make their economies more
competitive. The rulers of the EU’s debtor states, while loudly bemoaning these impositions,
have used the troika’s directives as political cover for lowering wages, lengthening the
workweek, easing restrictions on hiring and firing and implementing various other measures aimed at
raising profitability. Vincent Navarro of Johns Hopkins University observed:

“The measures being taken in Spain and other peripheral countries, with the
support of the Troika, by the Spanish and other governments are the measures that the conservative
forces they represent have always dreamed of: cutting salaries, eliminating social protection,
dismantling the welfare state, and so on. They claim they are doing it because of instructions from
Brussels, Frankfurt, or Berlin. They are shifting responsibilities to foreign agents, who supposedly
are forcing them to do it. It is the externalization of blame. Their major slogan is, ‘There
are no alternatives!’”—Counterpunch, 16 August
2012

The monetary union established by the Maastricht Treaty has produced a situation reminiscent of
the Latin American debt crisis of the 1980s, when governments suddenly lost any room to maneuver as
interest rates on their dollar-denominated loans started to rise. Unable to devalue their way out of
the crisis, the debtor countries were compelled to turn to the IMF, which imposed the same sort of
“internal devaluation” currently underway in Greece and Spain.

Dean Baker, a liberal economist at Washington’s Center for Economic and Policy Research,
debunked the capitalist media’s treatment of the EU crisis as “profligate governments
being reined in by the bond market”:

“The eurozone crisis is most definitely not a story of countries with out of
control spending getting their comeuppance in the bond market. Prior to the economic collapse in
2008, the only country that had a serious deficit problem was Greece. In the other countries now
having trouble financing their debt, the debt to GDP ratio was stable or falling prior: Spain and
Ireland were actually running budget surpluses and had debt to GDP ratios that were among the lowest
in the OECD.

“The crisis changed everything. It threw the whole continent into severe
recession. This had the effect of causing deficits to explode since tax revenues plummet when the
economy contracts and payments for unemployment benefits and other transfer programmes
soar.”—Al Jazeera English, 18 December 2011

Most serious bourgeois analysts recognize that much of the debt can never be repaid and will
ultimately have to be written down. The ECB’s and IMF’s attempts to contain the damage
have largely involved providing low-interest loans for central banks to repurchase their own
national debt. This has eased short-term pressure from financial markets and permitted foreign
creditors to offload their holdings without taking much of a “haircut.” The risk of a
meltdown in the euro zone has thus largely been transferred from the private to the public
sector.

Initially, the euro was celebrated as marking the dawn of a new era of harmonious integration and
cooperation between Europe’s disparate nations. Yet since the 2008 financial crash, there has
been a sharpening of national antagonisms and growing resentment between the haves and have-nots.
The pressures generated by seemingly endless rounds of austerity are increasing sentiment in some
countries toward opting out of the euro and/or the EU itself. If the euro zone were to disintegrate,
Europe would likely return to something closer to the situation of the 1930s, with competing states
taking shelter behind protectionist barriers while seeking to blast their way into foreign markets.
To prepare for the struggles to come, class-conscious workers must recognize that Europe’s
capitalist rulers would make essentially the same demands in preparation for a potential exit from
the EU as they now insist are necessary to remain within it.

Those leftists who blame Brussels and the IMF for the current attacks are not only engaging
in cheap demagogy, but are also alibiing their own rulers and laying the foundations for a
“union sacrée” (i.e., overt class collaboration). The French Parti Ouvrier
Indépendant (POI), led by cadres of the ostensibly Trotskyist Lambertiste tendency, are among
the worst examples, with their complaint that France’s “Hollande-Ayrault government is
obeying the orders of the troika” (Informations Ouvrières, 18 September 2012).
For these reformists, the key task of the workers’ movement is “the reconquest of
democracy and the sovereignty of the people” (Informations Ouvrières, 9
October 2012). Hollande, as the head of the French state, adheres to the instructions of the
“troika” only insofar as they meet the requirements of the imperialist bourgeoisie he
serves—those, like the POI, who refuse to recognize this are not socialists of any sort, but
simply vulgar nationalists.

An alternative outcome to the current crisis would be a deepening of the process of European
integration under German domination. The first tentative steps on this path have already been taken,
as debtor countries are pressured to surrender elements of political sovereignty as the price for
having their loans rolled over. During recent “bailout” negotiations, Germany floated a
proposal that a “European Commissioner for Monetary Affairs” be empowered to overturn
national budgets of euro zone states. This would in effect mean ceding control over fiscal policy
(taxation and expenditure) to Berlin, because given economic realities, in any European
“fiscal and monetary union,” the German bourgeoisie will be calling the shots.

As the economic situation in the EU continues to deteriorate, it is possible that some reformists
will propose that the answer is “more Europe” rather than less, i.e., moving in the
direction of a closer political union under capitalism. The amalgamation of the euro zone’s
disparate national bourgeoisies into some sort of federated multi-national ruling class would
require the fusion of their existing state apparatuses, a development without modern historical
precedent. This would require the French, Dutch, Belgian and other imperialist bourgeoisies of
Western Europe to opt for participation as junior partners (in some cases very junior partners) in
an enterprise effectively controlled by Berlin.

The British ruling class, which has refused to participate in the existing limited currency
union, is not likely to sign up for any kind of German-dominated European political union. Prime
Minister David Cameron recently floated the idea of a referendum on leaving the EU. The French
bourgeoisie has thus far adhered to a strategy of maintaining a bloc with Germany, despite secondary
differences on social policy and other issues. But outside a catastrophic event that appears to
threaten its very survival, it is impossible to imagine France’s ruling class, or those of
Europe’s other imperialist powers, voluntarily subordinating themselves to German
overlordship.

For a Revolutionary Solution to the Euro Crisis!

The present crisis of the euro zone presents a problem, but also an opportunity, for the
corporate titans who dominate the continent, few of whom want to see a collapse of the EU and a
return to reactionary autarky. The present climate of fear and instability is bad for business, but
also has an “upside”—it provides political cover for shredding social programs and
breaking the trade unions. Europe’s rulers present the savage offensive underway against
working people as an inescapable necessity imposed by impersonal “market forces” and
carried out by foreign-dominated agencies over which they have no control and for whose actions they
therefore are not responsible.

While the ECB markets its austerity diktats as “pro-growth,” in fact its policy is
deliberately intended to impoverish the vast majority of the population, as Dean Baker observed:

“People should recognise this process for what it is: class war. The wealthy are
using their control of the ECB to dismantle welfare state protections that enjoy enormous public
support.

“This applies not only to government programs like public pensions and healthcare,
but also to labour market regulations that protect workers against dismissal without cause. And of
course, the longstanding foes of Social Security and Medicare in the US are anxious to twist the
facts to use the eurozone crisis to help their class war agenda here.

“The claim that the countries in Europe are just coming to grips with the reality
of modern financial markets is covering up for the class war being waged on workers across the
globe.” —op cit

Tens of millions of Europeans are currently without work (or are facing the imminent prospect of
unemployment), while millions more have had both their hours and wages reduced. The rulers of the EU
know that the demands for more cuts to public works, social services, pensions and unemployment
benefits to pay for bailing out the big banks could set off a social explosion. Indeed, beating back
austerity is the only way that working people—the vast majority—can begin to defend
their right to a secure material existence.

Against the capitalist program of savage austerity, Marxists advance the perspective of a fight
for a shorter workweek at no loss in pay to combat unemployment. We also advocate a massive program
of public works at full union wages to build social infrastructure. Those unable to “think
outside the box” of capitalist profitability will consider such proposals fantastic. But the
fact that capitalism cannot guarantee a decent standard of living for the majority of humanity
proves that it is a historically obsolete social system. It is materially possible to expand
production, boost pensions and ensure that free quality healthcare, childcare and post-secondary
education are available to all—but this requires a revolutionary overturn of the existing
economic system in favor of one based on collective ownership of the means of communication,
transportation and production.

The present leadership of the working class is committed to a futile attempt to reengineer
capitalism, rather than uproot it. Regrettably, much of Europe’s ostensibly revolutionary left
has adopted the same approach. An article in the July 2012 issue of International
Viewpoint, a journal published by co-thinkers of the late Ernest Mandel, proposes to mobilize
“a vast anti-crisis movement” to appeal to the masters of the EU to rejig their system:
“we need a new deal: the ECB and national central banks must be allowed to directly finance
member States striving towards social and environmental goals that meet the fundamental needs of
people.” This wretched reformism, published by people falsely claiming to represent the
political tradition of Marx, Lenin and Trotsky, is premised on the notion that capitalism can
somehow be turned into a system capable of meeting “the fundamental needs of
people.”

Instead of trying to rationalize an irrational and outmoded social system, Marxists fight to
build a mass, revolutionary workers’ party committed to the overthrow of capitalism. Such a
party would pursue a policy of active class struggle, utilizing the militant tactics that won
victories in the past—picket lines, sit-down strikes, factory seizures and mass mobilizations.
To counter the attacks of the bosses’ thugs, a revolutionary party would seek to organize
workers’ defense guards to protect the oppressed, particularly immigrants and ethnic
minorities, scapegoated by fascists and other reactionary scum.

The existing union leadership cannot and will not organize the serious struggles required to
effectively counter the capitalist offensive because they are organically integrated, as the
materially privileged labor lieutenants of capital, into the bourgeois social order. They are an
agency through which the capitalists poison the proletariat with reformism and nationalist lies
about the identity of interests between the exploiters and their victims.

In reality, the two fundamental classes in bourgeois society—capitalists and
workers—have irreconcilably opposed interests. Conversely, working people in all countries
have the same fundamental concerns. Effective resistance to the current capitalist assault will
require proletarian solidarity across national lines and the recognition that an injury to one is an
injury to all. The answer to austerity (whether demanded by the troika or by a national bourgeoisie)
is the creation of a fighting pan-European workers’ movement capable of acting in concert to
defeat the bosses’ attacks.

To the impractical fantasies of reformism, Marxists counterpose the bold and practical solution
of expropriation of the banks and industry and creation of a government based on workers’
councils. Since the victory of counterrevolution in the Soviet Union in 1991, bourgeois
propagandists have had considerable success in discrediting the very idea of any possible
alternative to capitalist barbarity. Yet the intractable problems caused by the profit system can
only be solved through the socialization of production. And that can only be achieved through
proletarian revolution.

The tendency toward European economic integration and cooperation is evident, though its
potentially progressive content will remain unrealized until it is combined with the fight to
overturn the nation-state system and the institution of capitalist private property on which it
rests. The birth of a new world based on social equality, prosperity and harmony requires a midwife:
the revolutionary working class organized behind a mass Leninist-Trotskyist party. Such a party is
the indispensable factor necessary to transform today’s defensive struggles against austerity
into tomorrow’s fight for the creation of the Socialist United States of Europe.